Adobe shares fall over 3% on forecast

Financial outlook overshadows revenue surge

By

MichaelPaige

LOS ANGELES (MarketWatch) -- Adobe Systems Inc.'s shares fell as much as 3.4% Thursday after the maker of design and digital-document sharing software issued a financial forecast that fell short of some analysts' expectations, overshadowing a revenue surge.

The stock's drop came after Adobe
ADBE, +0.64%
late Wednesday said profit for its fiscal first quarter fell 31%, weighed down by charges related to the acquisition of Macromedia Inc. late last year. Quarterly sales climbed 39% thanks in part to the $3.7 billion acquisition, and profit excluding the acquisition-related costs exceeded expectations. See full story.

For the current quarter, though, Adobe issued a forecast that left investors disappointed.

Adobe pegged its second-quarter net profit at 18 cents to 21 cents a share, or a range of 30 cents to 32 cents a share excluding certain charges. Adobe predicted revenue for the current period as ranging between $640 million and $670 million.

The average of analysts' estimates had called for a profit of 32 cents a share before items, on revenue of $675.7 million. View analysts' estimates.

The company also said it continues to expect revenue of $2.7 billion for the fiscal year as a whole, in line with analysts' estimates.

Adobe's stock fell as low as $35.39 in the wake of its results and forecast. Shares dropped $1.08 to $35.54 by late morning and were off just under 1% for the year ahead of the firm's latest financial report card. See interactive charting.

Adobe's acquisition of Macromedia presented a challenge to Microsoft Corp.
MSFT, +1.50%
the world's largest software company, in the market for software used for designing Web sites and sharing documents digitally.

Macromedia's Dreamweaver program is the leading application for Web site design, rivaling Redmond, Wash.-based Microsoft's FrontPage, and its Flash animation software is a favorite of designers and other creative professionals.

Adobe's desire to bring Macromedia into its fold was fueled by a desire to push into new markets, as it looks to sell Macromedia products to the same customers that buy its own programs.

Quarterly results ahead, even without Macromedia

The firm said first-quarter net income fell to $105.1 million, or 17 cents a share, from $151.9 million, or 30 cents, a year earlier.

However, without the acquisition charges and other one-time items such as stock-option expenses, Adobe's profit would have increased to $197.5 million, or 32 cents a share, from $133.8 million, or 26 cents, a year ago -- ahead of the 29 cents analysts had expected.

Revenue for the quarter ended March 3 jumped to $655.5 million from $472.9 million, helped by Adobe's $3.7 billion purchase late last year of Macromedia.

Analysts surveyed by Thomson First Call had expected the San Jose, Calif., company to report revenue of $650.3 million.

Chief Executive Bruce Chizen said the company's revenue growth would have been healthy even without Macromedia's contribution.

During a conference call to discuss the results, the CEO said Adobe's standalone revenue would have increased by a double-digit percentage.

"Driving our business performance this quarter was strong demand for our creative solutions and our Acrobat product line," he said.

Chizen additionally said the company was rapidly integrating Macromedia and remains "excited about our prospects for future growth."

Adobe said revenue in the third quarter will be the lowest of fiscal 2006, due to typical seasonal patterns in Europe and Japan, according to Chief Financial Officer Murray Demo.

The fourth quarter, meanwhile, is expected to represent the highest revenue quarter of the year due to the launch of the next major Acrobat version, he said.

Demo, who had planned to retire by the end of March, will remain with the company through the close of its current quarter as Adobe continues its search for his replacement, said Chizen, the CEO.

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